Rising data fees to offset declining trading revenue burden market participants with surging costs
Research by Market Structure Partners (MSP) reveals that European stock exchanges are increasingly turning to market data sales to compensate for adverse market conditions that should have resulted in a downturn in equity market revenues such as declining equity trading volumes, shrinking market share, and a diminishing customer base. This shift has dramatically driven up the cost of equity market data, which is essential for issuers, investors, and market intermediaries to conduct their daily business.
The research, commissioned by a coalition of trade and other industry associations presents a critical analysis of how the equity market data business and fee structures of Europe’s largest exchanges (Deutsche Börse, Euronext, LSEG, Nasdaq Nordics and SIX Swiss Exchange Ltd) have evolved and how it stifles growth and innovation.
Niki Beattie, CEO of MSP said “This Study shows the ease with which exchanges can rely on market data income to supplement what should otherwise be a natural decline in revenue and suggests that, as a result, market growth has become a secondary objective. European policymakers with competitiveness and innovation agendas should rigorously challenge the current separation of trading and data revenues at all trading venues.”
Total equity market revenues consist of trading revenue and market data revenue combined. However, the market data pricing does not appear to align with the trading activity it underpins. Despite these adverse conditions, EU regulatory disclosures from Europe’s largest exchanges show that they appear able to sustain overall equity market revenues by increasing the portion that they generate from market data as trading revenues decrease. For example:
- Transacted value on Euronext’s equity markets reduced by 17% between 2020 and 2023. However, the total equity market revenue only declined by 0.5%. This is because market data revenues as a proportion of overall revenue increased from 11% to 19%.
- Transacted value on at Deutsche Börse’s equity markets reduced by 29% between 2020 and 2023. However, equity market revenue only declined 12%. This is because market data revenues as a proportion of overall revenue increased from 21% to 31%.
- Transacted value on Nasdaq Nordics’ equity markets reduced by 26.9% between 2021 and 2023. However, the total equity market revenue only declined by 8.8%. This is because market data revenues increased from 19% to 23%.
- LSEG only has to make regulatory disclosures for its EU subsidiary, Turquoise. Trading turnover on Turquoise significantly reduced between 2020 and 2022, some of which can be attributed to its sale of Borsa Italiana in 2021. Nevertheless, during the same period, market data as a percentage of overall equity revenue rose from 10.5% to 27%.
- These increases in market data revenue have occurred even though there are no specific costs for producing market data and the costs of running a trading platform, such as software, hardware, energy prices and other factors are stable or declining. Additionally, exchanges in the UK and Europe have run the same trading technology for more than a decade and there is no evidence of any significant expenditure in their accounts. Costs for disseminating data across the market are borne by third parties.
- The research argues that, exchanges have managed to maintain revenues by charging higher prices to fewer participants for more limited data. This appears to have been achieved through the introduction of arbitrary and complex fee structures that are based on multiple factors including: user type (broker/agent), competitive status, professional versus retail users, data consumption method (human use on display terminals versus machine use of non-display data), and number of devices that may be able to see the data. Restrictive clauses also limit data use to exchanges' predefined purposes, making it hard for innovators to use data without taking on indeterminate financial risk.
